THE DISTRICT government announced last week that it is about $29 million short of the revenue it expected for this fiscal year. Immediately, the word went out to city agencies -- principally schools, libraries, the police and fire departments, the courts and social services -- to cut spending for this year. Now there is speculation that the city's shortage of money may be even worse than has been reported.
Metro officials say the city still owes them $23 million for bus and train operations through December. The city council's finance committee chairman, John Wilson, has added that the city did not include in the deficit $14 million that will have to be spent for increased salaries or $16 million that is needed for the pension fund. The federal government also reports that the District has not repaid $20 million it borrowed from the U.S. Treasury during the last fiscal year.
What are we to make of this? Is the District about to do its rendition of the New York City financial crisis? No, but that is not the same as saying there is no problem. Some city agencies may have to cut expenses, but the current shortage of $29 million must be viewed against a total budget of $1.5 billion.
Still, these things do cause inconvenience and trouble. To prevent such small shortages of revenue from recurring -- causing bitterness and hand-wringing over which agencies will have their budgets cut -- the city should keep some of its money in reserve. It is now common practice for the city to budget every cent it expects to get and not leave itself a cushion in case some of the expected revenue does not come in. The D.C. auditor's office has recommended that the city allow itself a hedge of $25 million per year -- the cost of one city payroll -- as an insurance policy against shortages of small amounts of revenue.
City officials have been hesitant to do this because there always seems something urgent to spend money on. And in any event, the city has been able to go to Congress in recent years, when its cupboards are bare, and ask for a supplemental appropriation to the D.C. budget. It would be good policy for District officials to heed the city auditor's advice and start putting a little something aside for a rainy day -- like now.